Id2 is a member of the helix-loop-helix (HLH) family of transcription regulators known to antagonize basic HLH transcription factors and proteins of the retinoblastoma tumor suppressor family and is implicated in the regulation of proliferation, differentiation, apoptosis and carcinogenesis. To investigate its proposed role in tumorigenesis, Id2 or deletion mutants were re-expressed in Id2(-/-) dermal fibroblasts. Ectopic expression of Id2 or mutants containing the central HLH domain increased S-phase cells, cell proliferation in low and normal serum and induced tumorigenesis when grafted or subcutaneously injected into athymic mice. Similar to their downregulation in human tumors, the expression of cyclin-dependent kinase inhibitors p27(KIP1) and p15(INK4b) was decreased by Id2; the former by downregulation of its promoter by the Id2 HLH domain-mediated sequestration of E12/E47. Re-expression of p27(KIP1) in Id2-overexpressing cells reverted the hyperproliferative and tumorigenic phenotype, implicating Id2 as an oncogene working through p27(KIP1). These results tie together the previously observed misregulation of Id2 with a novel mechanism for tumorigenesis.